Suntec REIT plans to divest a portfolio of strata units at Suntec City Office for S$197 million and to acquire The Minster Building, which is a London office building with ancillary retail, for 353 million British pounds, or around S$667.2 million, the REIT said Tuesday.
The Minster Building, completed in 1990, is an 11-storey, grade-A office development, with a committed occupancy of 96.7 percent for its 293,398 square feet of net lettable area for office and retail space, the REIT said.
The Suntec City Office portfolio, representing 78,491 square feet of space, will be sold at an 8.9 percent premium over its independent valuation of S$180.9 million, with a net gain of S$13.9 million, the REIT said in a filing to SGX.
Chong Kee Hiong, CEO of the REIT’s manager, said the acquisition would expand the REIT’s footprint in the London market.
“The divestment of Suntec City Office strata units, coming on the back of the recent sale of 9 Penang Road and together with the acquisition of The Minster Building is the result of our active portfolio management to enhance unitholders’ value,” Chong said in the statement. “The proceeds from divestments and the recent perpetual securities issuance have improved our financial flexibility and enabled us to pursue growth opportunities for high quality and accretive assets in good locations.”
He noted The Minster Building has an income yield of 4.5 percent, higher than the divested assets’ 3.1 percent, achieving distribution per unit (DPU) accretion of 3.6 percent on a pro forma basis.
The Minster Building acquisition comes with an income guarantee of around 2.2 million pounds for two years of gross rental of vacant spaces and around 4.5 million pounds for two years of gross rental for the retail leases and around one year for the co-working lease, the filing said, noting this was due to the potential impact from the ongoing pandemic.
While noting the pandemic has caused more vacancy in London properties, it added most of that was in grade B or lower spaces.
“With an impending supply shortage of high quality grade A office spaces coupled with London’s status as the world’s leading innovation hub, demand for good quality offices will remain supported by the global business investments and capital inflows expected in time to come,” Suntec REIT said.
The cost of the acquisition will be financed with the proceeds from divesting the 9 Penang Road property earlier this month and the proceeds from the Suntec City Office units’ divestment, as well as the proceeds of perpetual securities issued mid-June and/or a pound-denominated loan, the REIT said.
After the acquisition and divestment deals are completed, the REIT’s assets under management will rise to S$11.7 billion across 10 properties in Singapore, Australia and the U.K., from S$11.5 billion previously, the statement said.